In a recent article for Vox, a woman named Laura shared how becoming a caregiver for her two aging parents depleted her finances. At first, Laura thought that she could afford to care for her parents because she worked as a freelance marketing consultant, which gave her flexibility and the opportunity to be her own boss.
However, as Laura’s parents grew older, her caregiving duties became complex and more expensive. Both of her parents would be diagnosed with dementia. They would also experience other healthcare issues (Laura’s mother would break a hip, and her father would also be diagnosed with kidney cancer) requiring more time away from work. As a result, she was left with large medical bills for hospitalizations and nursing home care which she struggled to pay. Eventually, Laura “found herself with a decimated retirement account, no other savings, and no income” after eight years of caregiving until each of her parents passed away.
While Laura had access to care services nearby, most nursing homes, home health agencies, and other care providers are located in metropolitan areas, creating geographic constraints for families in rural areas. Even if a long-term care provider is located nearby, however, Laura’s story shows that the high cost of care not only impacts the retirees who need access to advanced support services. It also affects the families who often have to financially support their loved ones as they age.
According to the National Institute on Retirement Security (NIRS), the median cost of a private room in a nursing home is $102,204 a year. Because Medicare does not cover the cost of long-term care, retirees either have to try and pay for it out of pocket or enroll in Medicaid to become eligible for it.
Each of these paths to coverage has significant obstacles. NIRS has found that half of Medicare beneficiaries had savings below $73,800 as of 2019, illustrating that many who need long-term care cannot afford it and often rely on financial assistance from loved ones like Laura provided with her parents. Enrolling in Medicaid also is difficult, as qualified applicants must own less than $2,000 in assets. Even if one meets this qualification, they will have to wait an average time of over three years to access support, as over 800,000 people who meet the criteria for Medicaid are currently on the waitlist for long-term care services.
In addition to supporting their parents, caregivers like Laura also face their own financial challenges in preparing for retirement. Research from NIRS shows that caregiving worsens the retirement gap between men and women. This is because female workers are more likely to leave the workforce for a period of time to provide care, cutting into their ability to save for retirement and jeopardizing their access to employer-sponsored retirement plans. Since 60% of caregivers are women, women are more likely to experience these adverse effects and have lower retirement savings overall.
One pathway can help alleviate the burden of long-term care for families, and that is a defined-benefit pension plan. Defined-benefit pensions offer numerous advantages over defined-contribution accounts like 401(k)s, such as guaranteeing a modest benefit based on their years of service, final average salary, and a benefit multiplier. And, because they collectively pool risk and are designed to be managed over a longer period of time, they ensure retirees do not risk outliving their savings.
Laura’s story showcases the importance of ensuring that both retired parents and their working-age dependents have a secure retirement. Protecting pensions can help each generation of workers retire with dignity when their working years are over.
